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  1. #1
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    Default Taxation of PIE income

    My PIR rate is 17.5%. Previously, a sizeable part of my portfolio was in growth companies that paid little, or no, dividends, Thus, the dividends were low enough to keep my basic income well below $49,000 enabling me to maintain a 17.5% PIR rate.


    However, now a portion of my investment is in NZX listed PIE companies, as well as non PIE cos. . Another portion is still in two PIE Funds.


    The IRD web site and the dividend advices inform me that I have the option of declaring, or, not declaring the PIE income.
    This implies that I can "cherry pick" which PIE dividends I include on my IR3. I assume, however, that is not true once the $70,000 threshold is breached. I am not there yet, so, the 2021 IR3 was fine.


    There may be some enlightening articles on the net, but I have not, as yet, located them.

  2. #2
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    Quote Originally Posted by Bev73 View Post
    My PIR rate is 17.5%. Previously, a sizeable part of my portfolio was in growth companies that paid little, or no, dividends, Thus, the dividends were low enough to keep my basic income well below $49,000 enabling me to maintain a 17.5% PIR rate.


    However, now a portion of my investment is in NZX listed PIE companies, as well as non PIE cos. . Another portion is still in two PIE Funds.


    The IRD web site and the dividend advices inform me that I have the option of declaring, or, not declaring the PIE income.
    This implies that I can "cherry pick" which PIE dividends I include on my IR3. I assume, however, that is not true once the $70,000 threshold is breached. I am not there yet, so, the 2021 IR3 was fine.


    There may be some enlightening articles on the net, but I have not, as yet, located them.
    Something I have not been able to locate is a list of NZSX companies that are PIES. And those I know of that are PIES don't bother indicating it on their web-sites. Most unhelpful for those like me who know next to nothing about the share market.
    Last edited by fungus pudding; 23-06-2021 at 04:16 PM.

  3. #3
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    Quote Originally Posted by Bev73 View Post
    My PIR rate is 17.5%. Previously, a sizeable part of my portfolio was in growth companies that paid little, or no, dividends, Thus, the dividends were low enough to keep my basic income well below $49,000 enabling me to maintain a 17.5% PIR rate.


    However, now a portion of my investment is in NZX listed PIE companies, as well as non PIE cos. . Another portion is still in two PIE Funds.


    The IRD web site and the dividend advices inform me that I have the option of declaring, or, not declaring the PIE income.
    This implies that I can "cherry pick" which PIE dividends I include on my IR3. I assume, however, that is not true once the $70,000 threshold is breached. I am not there yet, so, the 2021 IR3 was fine.
    You assume wrongly. Providing your PIR rate is correct, there is no need to declare any of your PIE income in your IR3.

    If your PIR rate is 17.5%, but your income gets into the higher than $49k tax bracket, then you may be required to declare your PIE income to correct the amount of tax that should have been deducted at source. But if you inform all the institutions which hold your PIE income generating income units of your correct PIR rate, then there is no need to declare any PIE income in your tax return, irrespective of how high your income gets.

    It remains optional to declare your PIE income in your IR3 at any time. But this is done for a special situation where some taxpayers can make use of PIE tax credits to offset tax payable from other income sources. For most people it does not make sense to declare their PIE income in their IR3.

    SNOOPY
    Last edited by Snoopy; 23-06-2021 at 06:00 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  4. #4
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    Quote Originally Posted by Snoopy View Post
    You assume wrongly. Providing your PIR rate is correct, there is no need to declare any of your PIE income in your IR3.

    If your PIR rate is 17.5%, but your income gets into the higher than $49k tax bracket, then you may be required to declare your PIE income to correct the amount of tax that should have been deducted at source. But if you inform all the institutions which hold your PIE income generating income units of your correct PIR rate, then there is no need to declare any PIE income in your tax return, irrespective of how high your income gets.

    It remains optional to declare your PIE income in your IR3 at any time. But this is done for a special situation where some taxpayers can make use of PIE tax credits to offset tax payable from other income sources. For most people it does not make sense to declare their PIE income in their IR3.

    SNOOPY
    Thanks Snoopy. Just to clarify my thinking, I can't ignore any of the listed PIE dividends when calculating my PIR?

    I was taken back to see the size of the gross BOT taxable dividend declared last week. This is when bonus shares are issued in order to utilise the accrued imputation credits. Immediately the shares are then cancelled. However, the gross dividend. declared but not paid out, can be sufficient to plunge one into the next tax bracket. This alters the PIR relating to the PIE fund income.

    Does anyone else see this as a taxation anomaly?

  5. #5
    Senior Member justakiwi's Avatar
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    My understanding is that these “bonus” dividend payments are simply a way for them to distribute excess imputation credits. I don’t believe the dividend itself (which is a cancelled dividend) is classed as income, but you can claim the imputation credits on your tax return if you are on a lower PIR.

    Someone will correct me if I’m wrong, but that’s how I read it.

    Quote Originally Posted by Bev73 View Post


    I was taken back to see the size of the gross BOT taxable dividend declared last week. This is when bonus shares are issued in order to utilise the accrued imputation credits. Immediately the shares are then cancelled. However, the gross dividend. declared but not paid out, can be sufficient to plunge one into the next tax bracket. This alters the PIR relating to the PIE fund income.

    Does anyone else see this as a taxation anomaly?

  6. #6
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    Quote Originally Posted by Bev73 View Post
    Thanks Snoopy. Just to clarify my thinking, I can't ignore any of the listed PIE dividends when calculating my PIR?
    No, the opposite. For IR3 purposes and determining your PIR, you can ignore all income that you receive from a PIE entity (edit: Not correct for FY2021 onwards at least). Your PIR will be determined from your total income that is not from PIE sources, and will equate to your marginal tax rate, to a maximum PIR of 28%, capped at that level especially for PIE providers. After you have determined your PIR, you then inform your PIE incomes sources what your new PIR is. Some PIE investments ask you annually to verify that the PIR they have on record for you is still correct. If the PIR assigned to you is too low for your current situation, our Inland Revenue Department will send you a note informing you of that fact and ask you to resubmit your IR3 return with any PIE income with a PIR that is too low now included (this is what happened to me last year). That will allow any 'extra tax' that should have been paid at source, to be paid by you.

    Quote Originally Posted by Bev73 View Post
    I was taken back to see the size of the gross BOT taxable dividend declared last week. This is when bonus shares are issued in order to utilise the accrued imputation credits. Immediately the shares are then cancelled. However, the gross dividend. declared but not paid out, can be sufficient to plunge one into the next tax bracket. This alters the PIR relating to the PIE fund income.

    Does anyone else see this as a taxation anomaly?
    Not familiar with your particular example. But when you get a bumper unexpected dividend or other form of taxable payout -not from a PIE entity-, then yes that can unexpectedly plunge you into a higher tax bracket. I wouldn't call the effect on your PIR an anomaly though. It just reflects that your PIR goes up when you go into the next tax bracket. That seems perfectly fair. Of course if that bumper helping of income is truly a 'one off' and your income in subsequent years is expected to dip back into your previous income tax band, be sure to inform your PIE income provider that your PIR rate has reduced again! Because the IRD will not refund you any extra tax paid from PIE sources if the PIR recorded for you at that PIE is too high!

    SNOOPY
    Last edited by Snoopy; 25-06-2021 at 09:30 AM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  7. #7
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    Quote Originally Posted by justakiwi View Post
    My understanding is that these ďbonusĒ dividend payments are simply a way for them to distribute excess imputation credits. I donít believe the dividend itself (which is a cancelled dividend) is classed as income, but you can claim the imputation credits on your tax return if you are on a lower PIR.

    Someone will correct me if Iím wrong, but thatís how I read it.
    There is such a thing as a 'taxable bonus share issue', which can be a way to distribute excess imputation credits to shareholders. As the name implies, this is fully taxable, even if no cash payout comes into your bank account as a result of such bonus shares being issued.

    I do not understand your reference to a 'dividend' being a 'cancelled dividend' Justakiwi. Can you please expand on the situation you are talking about?

    SNOOPY
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

  8. #8
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    Hi Snoopy, What I find strange is, that in creating new shares and then immediately cancelling them a dividend is declared to support the imputation credit.

    The result being no change in the no. of shares held. However, no dividend is actually paid to the shareholders. Maybe I am being obtuse. I just like to see the logic in these things.

    On a brighter note, BOT has risen over 50% since its introduction several years ago. So, I do not regret the purchase.

  9. #9
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    As described in the NZX announcement

    "CORPACT: BOT: BOT Taxable Bonus Issue Notice


    Monday, 24 May 2021

    Smartshares Limited is pleased to announce for the period ending 31 May 2021:

    o Taxable bonus issue and unit cancellation amount.

    You must be a registered security holder of the ETF on Record Date to be
    eligible for this distribution and taxable bonus issue and unit cancellation
    amount."

  10. #10
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    Quote Originally Posted by Bev73 View Post
    Hi Snoopy, What I find strange is, that in creating new shares and then immediately cancelling them a dividend is declared to support the imputation credit.

    The result being no change in the no. of shares held. However, no dividend is actually paid to the shareholders. Maybe I am being obtuse. I just like to see the logic in these things.

    On a brighter note, BOT has risen over 50% since its introduction several years ago. So, I do not regret the purchase.
    OIC, I guess this is what 'Justakiwi' is on about as well? The whole combination of things, on this occasion, is all within the PIE structure. So there is nothing for BOT unitholders to do here.

    You are quite right about the adjustment being strange though ($0.08639480 of pro-rata bonus shares being issued and then cancelled).

    https://www.ishares.com/uk/professio...ssthrough=true

    BOT (Smartshares Automatic and Robotics ETF) seems a locally listed way to invest in the the international Blackrock fund RBOT. The odd thing is that there is no evidence that RBOT invests in any New Zealand companies. That means no underlying NZ imputation credits are generated within RBOT. So with BOT being 100% composed of RBOT, how does BOT have any NZ imputation credits in the first place?

    Looking back, I see there were a taxable bonus issues on 23rd November 2020 ($0.030939629) and on 22nd November 2019 ($0.03358043), previously. Just like the May 24th 2021 announcement, these were accompanied by share cancellations. All I can say is that I am baffled by all of this.

    The only saving grace is that for NZ based unit holders, there is nothing to do, as all of these tax shenanigans are taken care of under the PIE structure.

    SNOOPY
    Last edited by Snoopy; 24-06-2021 at 04:59 PM.
    Industry shorthand sees BNZ employees still called 'bankers' but ANZ employees now called 'anchors'. Westpac has opted out of banking industry shorthand...

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